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This paper is also a discussion paper of the
John M. Olin Center’s Program on Corporate Governance.

Reinier Kraakman
Harvard Law School;
John M. Olin Center for Law;
European Corporate Governance Institute (ECGI)Abstract: This article is the second chapter of the second edition of "The Anatomy of Corporate Law: A Comparative and Functional Approach," by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda and Edward Rock (Oxford University Press 2009). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. In its second edition, the book has been significantly revised and expanded.

"Agency Problems and Legal Strategies" establishes the analytical framework for the book as a whole. After further elaborating the agency problems that motivate corporate law, this chapter identifies five legal strategies that the law employs to address these problems. Describing these strategies allows us to more accurately map legal similarities and differences across jurisdictions. Some legal strategies are "regulatory" insofar as they directly constrain the actions of corporate actors: for example, a standard of behavior such as a director's duty of loyalty and care. Other legal strategies are "governance-based" insofar as they channel the distribution of power and payoffs within companies to reduce opportunism. For example, the law may accord direct decision rights to a vulnerable corporate constituency, as when it requires shareholder approval of mergers. Alternatively, the law may assign appointment rights over top managers to a vulnerable constituency, as when it accords shareholders - or in some jurisdictions, employees - the power to select corporate directors. We then consider the relationship between different enforcement mechanisms - public agencies, private actors, and gatekeeper control - and the basic legal strategies outlined. We conclude that regulatory strategies require more extensive enforcement mechanisms - in the form of courts and procedural rules - to secure compliance than do governance strategies. However, governance strategies, for efficacy, require shareholders to be relatively concentrated so as to be able to exercise their decisional rights effectively.

2.1 THREE AGENCY PROBLEMSAs we explained in the preceding Chapter, 1 corporate law performs two general functions: first, it establishes the structure of the corporate form as well as ancillary housekeeping rules necessary to support this structure; second, it attempts to control conflicts of interest among corporate constituencies, including those between corporate ‘insiders,’ such as controlling shareholders and top managers, and ‘outsiders,’ such...

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...﻿AGENCYPROBLEM OF KFC
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Introduction to agencyproblemAgencyProblem is an economic, political, legal and corporate governance concept that aims to explain the difficulties in motivating one party (the agent) to act in the best interests of another party (the principal) instead of in his own interest.
A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem is that the agent who is supposed to make the decisions that would best serve the principal is naturally motivated by self-interest, and the agent's own best interests may differ from the principal's best interests.
Agencyproblem usually refers to a conflict of interest between a company's management and the company's stockholders. The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, it is in the manager's own best interest to maximize his own wealth. While it is not possible to eliminate the agencyproblem completely, the manager can be motivated to act in the shareholders' best interests through incentives such as performance-based...

... the conflicts always exist between them. An agencyproblem occurs when the interests of stockholders, the board of directors, and/or the management of the company are not perfectly aligned or when these entities conflict.
EXPLAINATION
Agencyproblem is typically caused by two reasons which are asymmetric information and hidden action. There is no legitimate theoretical or moral objection to those who assert that the goals of the modern corporation should be to serve the broad interests of all stakeholders rather than to serve the narrow interests of just the shareholders. In a large company, the principle refers to the shareholders of the company and the agent refers to the managers who is the subordinates in the company. Due to the separation of the ownership, managers are always responsible for the more detailed jobs (including job planning, supervising the sales ),the owner of the company do not have to supervise all the business in firm and managers sometimes would maximize their own profit. The behaviour mentioned before is hidden action. Moreover, managers have to run the company on a day-to-day basis, hence they hold more information related to the jobs or tasks. This will lead to different strategies and tactics made by managers, and managers could attach the documents such as financial reports and the accounting data but the shareholders only have the access to the annual reports. Hence there...

...Pro-market Reforms, Ownership Structure and The Institutional framework at Addressing the AgencyProblem and how Different Types of Firms in Transition Economies are affected by these measures.
As economies grow, in order for businesses to retain market shares, they can no longer rely on organic growth, many seek external finance either through initial public offerings or through banks, mutual funds and insurance companies. Although there are many side benefits of pursuing such growth strategy like dispersion of the entrepreneurs’ financial risk and gains from the specialised human capital of managers, there remains a significant problem: the principle-agent problem. While this problem is largely believed to be a phenomena belonging to transition economies, it concerns all economies as it directly affects access to capital hence the performance of businesses. The UK, US, Germany and Japan demonstrate some of the best corporate governance in the world however, whilst the US restrict large shareholders, Japan and Germany rely on large ownership by banks to curb managers’ opportunism. Despite the on-going discussion, both approaches are regarded as efficient and the overarching factor that gives them success is their effective legal system – institutional framework. Therefore, in my essay, I will firstly discuss the cause of the agencyproblem, then assess the...

...﻿Contents
Objective of study
The objective is to investigate how principle-principle agency conflicts impact on the quality and effectiveness of corporate governance in European listed companies.
Motivation for study
Most of corporate governance research only reveals that corporate governance can solute the agency conflicts between management and shareholders which fails to identify principle-principle agency conflicts and their influences on corporate governance.
Research question
Whether more severe principal-principal conflict is relevant with weaker corporate governance and whether the severity of the conflict affects the effectiveness of corporate governance and firm value with certain complementarities.
Contribution of study
Firstly, using the severity of the principal-principal conflicts to explain a sample of the quality and effectiveness of corporate governance. Secondly, majority shareholders consider about the costs of installing good governance. Thirdly, it shows how institutional factors impact on the decisions and outcomes of companies. Finally, it contributes to corporate control literature that develop an aggregate measure to exceed pure ownership structures in capturing the severity of the principle-principle conflict.
Literature review and Hypotheses
The study focuses on the “open system” approach providing the impact of the environment factors to the costs,...

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INTRODUCTION
The legal concept of agency plays an essential role under commercial transactions. This essay will first explain the definition of agency and methods of creating agency relationship, then the benefits and drawbacks of agency will be illustrated. Finally, there are two examples presenting formal and informal agency relationship.
THE LEGAL CONCEPT OF AGENCY
An agency refers to a legal relationship between agent and principal. A broad concept of agency is a person who is able, by virtue of the authority conferred upon him/her to create legal rights and duties as between another person, who is called his principal, and third parties.1
HOW DOES AGENCY ARISE
An agency relationship is simple to build, as the principal clearly manifest the intension for the agent to act on their behalf, and then reach an agreement by both. Generally, there are four ways to create agency, which are by express or implied appointment, ratification, operation of law, or by estoppel.
Agency created by appointment always involves in a form of consent from both the agent and the principal. This agreement can be generated through oral or...

...claimed that the McDonald’s employing them did not pay them for all hours being worked, scratched hours from the pay records and denied them required food/rest breaks. Most McDonald’s franchisees use software provided by the company that shows employee-to-sales ratios and tells restaurants to cut staffing when the sales have dropped below a certain range at any hour.
This has agencyproblem written all over it. Maybe not so much along the lines of managers acting for the best interest of shareholders but definitely managers acting in their own interests and not in the employee’s best interests. This agencyproblem is arising from the managers or franchise owners thinking that the money they are cutting from the employees work hours or extra work hours is theirs. Just because they own the restaurant does not mean they can pick and choose when to have these employees clock on or off so that they can gain the most profit possible. Just like the book says, “agencyproblems do arise whenever managers think just a little less hard about spending money that is not their own.” (Page 17)
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...costs may vary because of four factors:
1. Economies of scale
According to www.bized.co.uk , economies of scale is the advantages of large scale production that result in lower unit (average) costs (cost per unit). Some firms reach large economies of scale because of specialized input, the spreading of product developing costs, simultaneous consumption and network effects. Simultaneous consumption is the ability of product to satisfy a big numbers of consumers at the same time and network effects are increase of value of product to each consumer.
2. X-Inefficiency
X-Ineffiency is when the firms produce level of output that is higher than the lowest ATC. X-Inefficiency occurs due to poor management decisions, principal agent problem, poor worker motivation or ineffective supervision as the results of reliance on “rules of thumb” instead of real costs or revenue decision.
Figure [ 2 ]: X-Inefficiency
3. Rent seeking expenditures...

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the university’s computer system. Harvard University charged him with violating several laws. Mr. Zuckerberg was almost forced to leave school. But the university withdrew the charges. Mark Zuckerberg was also accused of stealing other people’s ideas and using them in Facebook. He has denied the charges. Several people have taken legal action against him. At first, only Harvard students could use Facebook. But it quickly expanded to other universities. The website was also opened to high school students. Now, anyone at least thirteen years old with an e-mail address can join. In the early days, only a small group of people managed Facebook. Now it has over one thousand seven hundred workers in twelve countries. Facebook makes money by selling advertising. It has been extremely successful. The financial company Second Market, Incorporated, says Facebook is worth forty-one billion dollars. A movie about the creation of Facebook, called “The Social Network,” was released in October. We also had a question from Vietnam. Van Nguyen wants to know about the...